Crisis reinforced core values at Bankers Trust

Iowa financial institution fared well in tough times

Oct. 11, 2013

Bankers Trust Chief Executive Officer Suku Radia said the financial crisis was a trying experience for the largest Iowa-based bank and one that featured more than its share of lessons for bankers and consumers. / Register file photo

Bankers Trust made it through the financial crisis and the low-interest rate climate that followed with less drama than many of its peers. However, Chief Executive Officer Suku Radia said it was still a trying experience for the largest Iowa-based bank and one that featured more than its share of lessons for bankers and consumers.

He took over as CEO in March of 2008, just three months into the worst U.S. economic contraction since World War II.

The experience reinforced the wisdom of planning for the worst, he said, and remembering that the best of times are always followed by downturns in an industry so closely tied to the normal U.S. economic cycle of growth and contraction. It was also a stark reminder of the need for bankers to stick with what they know best, resist the lure of easy money and the risks that go with it, be careful who they lend to, and be prudent in their own use of leverage or borrowed money.

Q: What lessons have business leaders, policymakers and consumers learned the past five years?

A: “We live in a world where the only constant is change. Economic cycles are exactly that — cycles. Thus, we need to learn that we cannot take a boom cycle for granted, because the economy does have a tendency of overheating and there is bound to be a correction. In simple terms, business leaders have to learn to manage through the best and the worst of times. Don’t ever take your eye off the ball.

“The other lesson we have to learn is that there are no shortcuts. In their book ‘This Time is Different,’ authors Carmen Reinhart and Kenneth Rogoff convincingly argue that eight centuries of financial folly still can be summarized in two words: greed and ignorance. The past five years demonstrated that Wall Street, in particular, thought it had figured out how to take shortcuts by designing exotic financial instruments, which turned out to be too good to be true.”

Q: What, if anything, have we failed to learn?

A: “While we have learned in general to not become overly leveraged, the reality is that there are always going to be those who want to return to the ‘go-go’ days and they are the ones who ultimately get into trouble. The other thing we have failed to learn is that we need to increase our savings rate, especially for retirement. Your Social Security and pension plan checks will not be sufficient if you want to maintain any real lifestyle.”

Q: What was the biggest lesson for you and Bankers Trust?

A: “I joined the bank just as the financial crisis was beginning. The challenges we faced as a bank during my first two years could not simply be attributed to an overall downturn in the economy. We learned that there are indeed no shortcuts; we need to stick with what we know and do best. In a superheated commercial real estate market, banks were extending credit on unsustainable values and assumptions. In hindsight, the whole industry got carried away extending credit.”

Q: Do you think enough has been done to prevent future financial crises or are we still at risk?

A: “In my mind, we are still at risk and always will be. For the foreseeable future, there will be those who survive the crisis and have learned the lessons for the future. (However, eventually) there will be a whole new generation that will have never seen a downturn and I have no doubt we will have another crisis although, hopefully, not of the same magnitude.”

Q: How close is Bankers Trust to complete recovery?

A: “I believe we have fully recovered and we have a team in place that does an exceptional job of managing asset quality,” Radia said, noting that 2012 was the best financial year in the almost 100-year history of Bankers Trust. “At the end of the first six months (of 2013), we were 32 percent ahead of the prior year” in terms of our net income.

Q:How are you a better and stronger company as a result of the crisis?

A: “We are fundamentally a different organization than we were five years ago because we weathered the storm extremely well and we watched what happened to so many banks in central Iowa and across the country. The lessons to be learned are simple.

“Always exercise healthy skepticism when underwriting any loan and ensure you take the time to fully understand the business of your customer. Get to know your customer. If your customer does not have integrity, don’t waste your time.

“When investing in marketable securities, don’t go for the extra yield just to take on more risk. It is simply not worth it. We have a pristine portfolio of almost $500 million which outperforms the industry by a long way. We have never deviated from our investment policy.

“When you go through crises such as the one we encountered, ensure you do everything humanly possible to display your loyalty to your employees and to express your appreciation to them. Ours is a people business and we did not lay off one individual as a result of the crisis. We have emerged stronger with a workforce that is second to none.”

Q: What is the hardest decision you had to make to keep Bankers Trust moving in the right direction?

A: “There were times when it seemed the entire banking industry was at a standstill. Banks were not lending money as no one knew if we had hit bottom. The decision to continue to lend, trusting our employees to make sound loans and work our way forward, while difficult, proved to be the right move.

“Our (annual employee) attrition rate has been well below 5 percent on average and we have remained very loyal to our employees who in turn have performed brilliantly. We recognize we are in the service business before we are in the banking business and the data clearly supports that the marketplace has rewarded us very nicely.”